Which TWO of the following would be the primary disadvantages of producing the disclosures required in IFRS12 Disclosure of Interests in Other…

The primary disadvantages of producing the extensive disclosures required by IFRS 12 relate to the cost of preparation and the potential for information overload. Compiling the detailed information on interests in subsidiaries, joint arrangements, associates, and unconsolidated structured entities is a resource-intensive and costly process for the reporting entity, directly impacting profitability (B). Furthermore, the sheer volume and complexity of the required disclosures can overwhelm users of financial statements, making it difficult for them to discern the most critical information. This phenomenon, known as "information overload," can undermine the very objective of the standard, which is to improve clarity (A).

C. While disclosing commercially sensitive information is a potential risk, the standard's requirements are generally designed to balance transparency with competitive harm, making this a secondary concern compared to cost and volume.

D. Highlighting risks is the primary objective and a key benefit of IFRS 12 for users, not a disadvantage of producing the disclosures.

E. The requirement for an audit is standard for all components of financial statements, not a unique disadvantage of IFRS 12. The associated cost is encompassed by option B.

1. International Accounting Standards Board (IASB). (2021). Post-implementation Review of IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities

Report and Feedback Statement.

Paragraph 5.10: Directly supports option A

stating

"Some users said that the volume of disclosures required by IFRS 12 can be overwhelming (information overload)

which can make it difficult for them to identify the information that is most important."

Paragraph 5.11: Directly supports option B

noting

"Most preparers and some auditors said that providing the disclosures required by IFRS 12 is costly

particularly the disclosures about unconsolidated structured entities and the summarised financial information for each material joint venture and associate."

2. IFRS Foundation. (2011). Basis for Conclusions on IFRS 12 Disclosure of Interests in Other Entities.

Paragraph BC11: Supports the reasoning for option B

explaining that in developing IFRS 12

"the Board sought to balance the needs of users of financial statements for information... with the costs to preparers of providing that information." This acknowledges cost as a primary consideration and disadvantage for preparers.

3. Bischof

J.

& Daske

H. (2016). The Economic Consequences of IFRS 12 and the Scope of the Consolidation. Journal of Accounting Research

54(4)

997-1046.

Section 4.2

page 1015: This study provides empirical evidence supporting option B

finding that "compliance costs associated with IFRS 12 are substantial" for firms

particularly those with complex group structures. This reinforces that cost is a significant

documented disadvantage. https://doi.org/10.1111/1475-679X.12123